Apple buying Beats for $3.2 billion?

When I first heard it last night it seemed nuts to me. It's not an industry I know much about. I thought iTunes Radio was pretty good. Far superior to Spotify or Pandora for my uses. But I do think the curated playlist makes sense. Hopefully they bring that to the App Store to fix the mess there.

If the licensing doesn't transfer though this seems *very* weird for $3.2 billion. You buy it and then all the labels say, "no way!" Then you're left with nothing. So I bet Cook wouldn't fire on this deal unless they *first* had assurances that the licensing would transfer. If it's going assume those deals have already been made.

If Apple is buying Beats for their brand of headphones...when's the last time Apple relied on someone else's brand to sell their products? They didn't even let the Intel stickers come for a ride and they told all the carriers to piss off when they wanted phone branding. Selling Headphones by Beats or even Beats Audio (on the computer and iOS devices) makes zero sense given the way Apple is about branding. And if not for the brand, then why sell the headphones? You don't think Apple could leverage its own brand and make a ton of money selling a wide array of Apple headphones? It'd be cheaper than $3.2 billion.

No, this is not for headphones. I almost expect Apple to sell off the headphones division, unless there's some weird patents they can use for speakers. If Apple wanted to sell headphones, they could build up their own brand to do it. No, this is more about a critical need that needs to be solved RIGHT NOW. iTunes revenues are down, the young people are used to streaming their music now and these young'uns are becoming a much greater percentage of the market. Need to keep these people in the Apple ecosystem, so they need a ready made streaming service and Apple has proven they can't build one of these. And without Jobs yelling at record execs, they don't have the same pull with the music industry leaders like they used to. This is about Beats Music (nee MOG) and Jimmy Iovine.

If it's about headphones, I'm selling all my AAPL, because Apple is now Microsoft and will eventually wither to irrelevance. At best, the Beats headphones will get relabeled as Apple headphones.

Heck, I'm 43 years old and I haven't "bought" a music track in months (and from iTunes in a couple years, at least). The value as compared to a $10-a-month Spotify Premium subscription simply isn't there. iTunes Radio, in all its milquetoast, late-to-the-party glory, does nothing to change that. I remain more and more convinced this purchase, if it happens, comes out of a sense of urgency within 1 Infinite Loop that iTunes as a media store is a few steps away from complete irrelevancy, and that may become a drag on the overall brand.

The tl;dr version: nobody wants to buy music anymore, but nobody including Beats can make money off streaming. Apple doesn't have a plan for streaming, but does have 800 million iTunes accounts with credit cards. Kids like Beats and are stupid enough to buy their overpriced headphones. Apple will instantly have the best-leveraged music streaming service and can make the $3.2 billion back from stupid kids buying overpriced headphones.

The tl;dr version: nobody wants to buy music anymore, but nobody including Beats can make money off streaming. Apple doesn't have a plan for streaming, but does have 800 million iTunes accounts with credit cards. Kids like Beats and are stupid enough to buy their overpriced headphones. Apple will instantly have the best-leveraged music streaming service and can make the $3.2 billion back from stupid kids buying overpriced headphones.

Apple doesn't need to scam people with snake oil crap like this. They're not a company that desperately needs revenue at the cost of tarnishing their own brand. Beats has a mixed reputation precisely because of the snake oil they sell. They're a fashion accessory first, headphone company second.

The tl;dr version: nobody wants to buy music anymore, but nobody including Beats can make money off streaming. Apple doesn't have a plan for streaming, but does have 800 million iTunes accounts with credit cards. Kids like Beats and are stupid enough to buy their overpriced headphones. Apple will instantly have the best-leveraged music streaming service and can make the $3.2 billion back from stupid kids buying overpriced headphones.

It's my assertion that Apple sells off the Beats Headphone division eventually. I can't see them spending the effort of making good headphones out of them and keeping the Beats brand to sell them with. Either they make better headphones and use the Apple brand to sell them (what's the point, unless there are some studly engineers at Beats hidden in the basement somewhere that aren't allowed to make design decisions) or keep them and their shoddy audio quality ways (doesn't seem very Apple like). The brand its probably worth more on its own, since there's a class of user (apparently most of the premium headphone market) that likes their overdriven bass headphones.

Now, the kicker is Apple doesn't need to make money off streaming. If it sells more iDevices while breaking even, that'll be good enough for Apple.

Apple doesn't need to scam people with snake oil crap like this. They're not a company that desperately needs revenue at the cost of tarnishing their own brand. Beats has a mixed reputation precisely because of the snake oil they sell. They're a fashion accessory first, headphone company second.

Just how bad are Beats? Lets take a look: (click for a large version)

An argument like this is a pathway into a Battlefront-style war of attrition about specs and qualifications and minute no one "objectively" cares about. Apple made great big huge massive piles of money selling iPods during the first digital music revolution, a set of products that were objectively worse in almost every way than the competition. Yet people bought into the idea of a reasonably well-crafted technological objects that were easy to use, easy to buy, and, more importantly, were "cool." One person says to another, "hey, you like your Beats cans?" that person says, "yeah, they're dope." and off they run to Target to buy their own. Easy-peasy.

I'm not lobbying in any way that somehow Beats By Dr. Dre headpones are worthy of being bestowed the label of audiophile excellence, but come on. Apple, like Nike, like Beats By Dr. Dre, Like Burberry (natch), like a lot of companies, sells a brand and a lifestyle and an experience as much as they sell products. If that wasn't somehow alluring to all of us, we'd be having this argument via PCs we built ourselves with only the finest, hand-selected components ordered from NewEgg.

But again: I doubt Apple will even keep the headphone business. What I suspect is interesting here to Apple and worth pulling out the extra large checkbook for, is Mr. Lovine, his relationships, and the Beats Music Service. The rest is gravy for Apple to discard as they see fit.

But again: I doubt Apple will even keep the headphone business. What I suspect is interesting here to Apple and worth pulling out the extra large checkbook is Mr. Lovine, his relationships, and the Beats Music Service. The rest is gravy for Apple to discard as they see fit.

I get that but the issue is that Apple will have to re-negotiate streaming contracts with record labels and that will cost them hundreds of millions. It's a well known fact that these streaming licenses are not transferable (just look at Spotify's legal documents and why they haven't sold out yet). So if you consider all this, what exactly are they buying? An app? A dev team? A brand that they'll kill off? Maybe it's worth buying that but the price of $3.2B is insane for something that's a commodity product at best.

If they were spending billions for something like Oculus that can develop into a $20-30 billion gaming market, I'd be all for it. But headphones and a me-too streaming service with 20k customers that they don't even get licensing rights for? Ridiculous.

I get that but the issue is that Apple will have to re-negotiate streaming contracts with record labels and that will cost them hundreds of millions. It's a well known fact that these streaming licenses are not transferable (just look at Spotify's legal documents and why they haven't sold out yet). So if you consider all this, what exactly are they buying? An app? A dev team? A brand that they'll kill off? Maybe it's worth buying that but the price of $3.2B is insane for something that's a commodity product at best.

Absolutely; unfortunately, we're not privy to Beats' deals with the record labels. If—and this is a huge, big if—Mr. Lovine's influence in the industry has somehow allowed Beats to negotiate licenses that would transfer (or he's confident he could re-negotiate them on behalf of Apple with little difficulty), then I think this makes a ton of sense. At some level, I have to believe there is some publicly-unknown element to this deal like this that makes it worthwhile for Apple. Time will tell. Otherwise, my argument collapses and you're right: It becomes a bit of a head-scratcher.

They're buying the guy that can negotiate with music labels. Steve Jobs isn't around to yell at the music execs anymore. And they're buying a ready made streaming service that they can integrate quickly. Overpaid for what they need? Definitely. But I bet half the company wasn't for sale, so they had to buy the whole kit and caboodle. They obviously see a critical need and that wasn't for overpriced plastic (Apple sells enough of that on their own </snark>); a streaming service that's better than their own attempt plus a music industry veteran with a lot of contacts coming onboard as an advisor would seem to fit that definition much better in light of the rapidly declining music sales in the iTunes store.

Bonus is they can sell off the headphone division (it's very profitable, so there will be takers) pretty easily.

Whether from an entrenched position as a dominant purveyor of music or a philosophy ingrained in the company by Steve Jobs, Apple has shown a distinct lack of vision in transitioning the business model of selling music to renting music. It would seem there was no Plan B ready in case iTunes Radio failed to do whatever it was supposed to do, which I presume was not to fail miserably, which it did. Rather than spending the time to create their own service while music sales continued to slide, they went shopping.

There is Pandora, but Pandora is structured around advertising, which has not traditionally been a business model Apple has embraced. We have Google for selling people. Pandora is also a money loser, another business model Apple avoids. We have Microsoft for pumping money into consumer products that lose money for years and years. Pandora is also valued at $4.5 billion, so maybe $9 billion to buy, which is significantly more than the price for Beats, and without a snake-oil division. Pandora does have a lot of subscribers, but the vast majority of them are on other platforms. Apple's services promote Apple hardware, so the first thing Apple would have to do is pull the plug on the majority of those listeners. That's not a PR nightmare at all. Also, no relationship with the industry through Jimmy Iovine, either. So, Pandora costs too much, relies on ads too much, and has too many people on other platforms.

Apple could have bought Spotify, valued at one billion, so probably two billion to buy. That would get Apple 5 million subscribers, and Spotify likes paying subscribers, but theyare spread over pretty much every platform you could imagine, so same problem as Pandora. Again, Apple would not be getting the lucrative "snake oil" business that comes along with Beats, and, again, they wouldn't be getting the relationship that Jimmy Iovine has with the industry. Spotify is just a cheaper losing proposition than Pandora.

Everybody else that could be bought in the streaming game is just pretty much waiting to die.

I think Apple made a pretty decent acquisition under duress. Ideally, they should have been doing something about streaming instead of fucking around with iTunes Radio for the last year or so, but all you can do about that is blame someone and fire them.

I, for one, welcome our new snake-oil selling overlords, and look forward to renting music from Apple, but not buying their crappy headphones.

Isn't Iovine the chairman of Universal Music Group? If so, there may be some rights at play here. Quoting from their Wikipedia entry: "UMG also owns Universal Music Publishing Group, which is the third largest music publishing company in the world. Universal Music Group's global corporate headquarters are located in Santa Monica, California."

There's also been rumors that he'll be some kind of special advisor to Cook.

Jade, where do you get the valuations for Pandora and Spotify? I don't doubt those numbers, but I'm shocked that Pandora's is so much higher than Spotify's. I'd expect those numbers to be reversed, honestly.

Jade, where do you get the valuations for Pandora and Spotify? I don't doubt those numbers, but I'm shocked that Pandora's is so much higher than Spotify's. I'd expect those numbers to be reversed, honestly.

Pandora is publicly traded and its market cap is currently around $4.5 billion. That's for a company that loses money every quarter acting as a middleman for content owners. Crazy.

Spotify is actually "valued at" four billion, but that's based upon the last round of funding. That valuation is more like wish fulfillment on the part of investors, as we saw now with Apple buying Beats. However, I should have said that was my cynical opinion, so my bad.

However, it makes both companies much more expensive for Apple, less aligned with Apple's interests providing services on the platforms of competitors, and with less to offer in the way of profit and connections with the industry.

I almost think this is some kind of smokescreen by Beats to increase the selling price to some other company not named Apple. When was the last time you heard of an Apple acquisition before the fact? Apple typically does not comment on thses things anyways. Leak a rumor that Apple is buying Beats for $3.2B, and the actual buyer then ups the bid price to say $3.5B and you just made an additional hundreds of millions .

I'm not lobbying in any way that somehow Beats By Dr. Dre headpones are worthy of being bestowed the label of audiophile excellence, but come on. Apple, like Nike, like Beats By Dr. Dre, Like Burberry (natch), like a lot of companies, sells a brand and a lifestyle and an experience as much as they sell products. If that wasn't somehow alluring to all of us, we'd be having this argument via PCs we built ourselves with only the finest, hand-selected components ordered from NewEgg.

The brand/lifestyle/etc (if I'm interpreting you correctly) isn't important to all of us. I couldn't give less of a shit about that sort of thing. It's the same thing with cars: I have my eyes on an Audi S5/A5 because I want a high quality interior, a respectable amount of power, and all wheel drive with a body that I find appealing. I don't want it because it's an Audi, and if you slapped a different badge on the same car it'd still want it. Alternatively, if you dropped a rattly cheap plastic interior and a 100hp engine in the car, I'd no longer want it regardless of the logo on the grille.

I'll believe it when I see it. And even then, I probably won't believe it.

I could understand spending millions on acquiring talent from the company itself (Iovine) but it doesn't seem like the two companies have any real DNA in common. As a shareholder, if this goes through they are really going to have to sell how this is good for Apple because from the peanut gallery it looks like a bad deal.

Color me skeptical on many fronts. I'm much more intrigued by the rumors of a new search engine.

But where is this crisis in music that apple is in? I know iTunes store revenue is down but is this a crisis? Is iTunes Radio beyond repair? Does everyone expect that users will sit patiently near their macs and iPhones waiting, just waiting, to click the buy button while they listen to the radio? Are users abandoning iTunes?

I'm getting increasingly exasperated with Apple's inability to provide a decent value proposition, cover all their markets and provide ongoing updates to their services.

It took them about two years to roll out iTunes Match to most of their markets. iTunes Radio has an unclear value proposition compared to its competitors and is available in only the US and Australia eights months after launch. That might be forgivable if Apple was the first entrant into the market, but it isn't. Even if their product isn't great, just showing up to the fight would help a great deal especially since it would come pre-installed on the device.

Six years (!) after launch, Spotify is absolutely ubiquitous here in Sweden. Out of five people in my family, three subscribe to the premium, and I and one more frequently use the free service (the online player is awesome when you need to use the computer labs, for example). And I'm not really even a fan of the rental model. Go to a party, 95 % of the time the music will be provided by Spotify (which unfortunately often leads to ridiculous fights over the music). I'm sure it won't get easier for Apple.

And after negotiating with music companies for at least 12 years, why don't they have this down to a pat?

Will Beats help them make an entrance in "new" markets? I doubt it, it, too, is only available in the US.

Oh, and 18 months after the launch of Apple Maps, my hometown of 100k people is still in low-resolution black-and-white satellite imagery. Google Maps has street-view data. It's embarrassing for Apple, and it's embarrassing for me when I recommend an Apple product to someone.

There has got to be something more than meets the eye here. I've been following this company closely for many years (yikes) and while they may make mistakes this mgmt team doesn't strike me as stoopid or desperate. Thus I don't believe this is about fashion, headphones, or (the current incarnation of their) streaming service.

The point about "acquiring" an industry guy like Iovine makes some sense, but 3.2B for him does not.

There must be a bigger play here...or maybe this is about fashion, and I'm just too old to get it!

I almost think this is some kind of smokescreen by Beats to increase the selling price to some other company not named Apple. When was the last time you heard of an Apple acquisition before the fact? Apple typically does not comment on thses things anyways. Leak a rumor that Apple is buying Beats for $3.2B, and the actual buyer then ups the bid price to say $3.5B and you just made an additional hundreds of millions .

It took them about two years to roll out iTunes Match to most of their markets. iTunes Radio has an unclear value proposition compared to its competitors and is available in only the US and Australia eights months after launch. That might be forgivable if Apple was the first entrant into the market, but it isn't. Even if their product isn't great, just showing up to the fight would help a great deal especially since it would come pre-installed on the device.

The word is that the Labels don't want to give Apple a break because they think Apple has to much power. That's one of the ways this deal makes sense, they are buying insiders with good relationships.

There has got to be something more than meets the eye here. I've been following this company closely for many years (yikes) and while they may make mistakes this mgmt team doesn't strike me as stoopid or desperate. Thus I don't believe this is about fashion, headphones, or (the current incarnation of their) streaming service.

The point about "acquiring" an industry guy like Iovine makes some sense, but 3.2B for him does not.

There must be a bigger play here...or maybe this is about fashion, and I'm just too old to get it!

Pp

I’m with you. If this is real it’s about Iovine. As for the price once you realise that this is not your typical tech buyout and Beats is in fact a money making business. 3.2B for a company that had 1B in revenue last year isn’t all that bad in this day and age. Google paid that for Nest and it wasn’t a money maker.

Can someone explain what the difference is between the Beats streaming service and Apple's iTunes Radio?

I've dabbled with iTunes Radio once or twice (I have an iTunes Match subscription) and it didn't particularly appeal to me, but I've never used Beats so have no idea what would be so different about it.

Can someone explain what the difference is between the Beats streaming service and Apple's iTunes Radio?

I've dabbled with iTunes Radio once or twice (I have an iTunes Match subscription) and it didn't particularly appeal to me, but I've never used Beats so have no idea what would be so different about it.

Beats Music, Spotify, RDIO, XBox Music, Google All Access, Deezer, and a few others, are subscription music services. iTunes Radio, Pandora, and others like them, are streaming radio services.

Subscription services are like Netflix for music: For a monthly fee, you get unlimited access to their entire music catalog on demand. You can listen to any song or album you want, in any order, as often as you want. Songs are streamed to you at relatively high-quality (Spotify's subscriber streams are 320kbps, for example) or you can download the tracks as DRM'ed files for off-line listening. If you stop paying the monthly subscription fee, you lose access to the music (except in the case of Spotify, which has a limited, ad-supported free mode).

With streaming radio services, you get to choose the genre or starting point for the station, or choose from curated playlists, but your ability to control the exact band or album you're listening to is limited—just like a traditional broadcast radio station. These services are usually free, or only charge a modest fee, usually to remove advertising.

Many think the former will be the future of music consumption at the consumer level: As individual album and track sales through vendors like iTunes continues to decline, subscription music services have seen strong growth. Spotify is generally considered the dominant service among them; Beats' service is relatively new, debuting earlier this year.

It's generally thought that Apple's wanted to do a streaming service but couldn't convince labels, who felt burnt by iTMS last 10 years, to let Apple have a dominate playing position. That's why the Beats purchase is interesting. As I mentioned one assumes Apple wouldn't buy them unless there was some guarantee most of the licenses would accept the purchase. I don't think anyone thinks Apple is buying them for their crappy but well marketed headphones. Rather this is all about contacts in the industry so Apple can be in the streaming business.

If this is true, Tim Cook needs to go. He's clearly not a visionary and definitely not someone that should be in charge of Apple.

I wish Apple would buy Tesla and install Elon Musk as its CEO. At least he wouldn't be slow, cautious and pass out on good deals like Cook has. After few years after Steve Jobs' passing, Cook hasn’t introduced any new product categories and has been timid while the industry has been moving quickly. Apple's extremely low (by technology stock standards) P/E is just about right considering Cook's leadership so far.

Apple should have bought Oculus, not makers of crappy headphones and a streaming service that Apple can replicate in few months if they wanted.

Apple's skating where the puck was not where it's going to be.

Oculus, is more unprofitable crap, Beats at least makes money with a profit, Oculus never will. Still not for Apple spending 3.2 billion.

Can someone explain what the difference is between the Beats streaming service and Apple's iTunes Radio?

I've dabbled with iTunes Radio once or twice (I have an iTunes Match subscription) and it didn't particularly appeal to me, but I've never used Beats so have no idea what would be so different about it.

Its not streaming is by in large worthless, but the content companies as a way to get to subscriptions which is their endgame.

It's generally thought that Apple's wanted to do a streaming service but couldn't convince labels, who felt burnt by iTMS last 10 years, to let Apple have a dominate playing position. That's why the Beats purchase is interesting. As I mentioned one assumes Apple wouldn't buy them unless there was some guarantee most of the licenses would accept the purchase. I don't think anyone thinks Apple is buying them for their crappy but well marketed headphones. Rather this is all about contacts in the industry so Apple can be in the streaming business.

It's generally thought that Apple's wanted to do a streaming service but couldn't convince labels, who felt burnt by iTMS last 10 years, to let Apple have a dominate playing position. That's why the Beats purchase is interesting. As I mentioned one assumes Apple wouldn't buy them unless there was some guarantee most of the licenses would accept the purchase. I don't think anyone thinks Apple is buying them for their crappy but well marketed headphones. Rather this is all about contacts in the industry so Apple can be in the streaming business.

Utter fantasy the licenses will not transfer over.

Just curious, but you know this as a fact how, exactly? Or like everyone else here, you are just guessing?

It's generally thought that Apple's wanted to do a streaming service but couldn't convince labels, who felt burnt by iTMS last 10 years, to let Apple have a dominate playing position. That's why the Beats purchase is interesting. As I mentioned one assumes Apple wouldn't buy them unless there was some guarantee most of the licenses would accept the purchase. I don't think anyone thinks Apple is buying them for their crappy but well marketed headphones. Rather this is all about contacts in the industry so Apple can be in the streaming business.

According to sources, the industry has tried to get Apple to buy into streaming for years, but Apple has clung to the idea that people want to "own music," as Steve Jobs said. The influence of Jobs cannot be underestimated at Apple, but that's not the same thing as Steve Jobs being there. Steve Jobs evolved in his thinking more quickly when reality disagreed. I think Tim Cook and the leadership finally realized they were late to streaming and moved as quickly as possible by buying Beats instead of developing their own service. The penalty is $3.2 billon, a relatively small price to pay. Apple has lost a hell of a lot more money by being so late with smartphones with large displays.

It took them about two years to roll out iTunes Match to most of their markets. iTunes Radio has an unclear value proposition compared to its competitors and is available in only the US and Australia eights months after launch. That might be forgivable if Apple was the first entrant into the market, but it isn't. Even if their product isn't great, just showing up to the fight would help a great deal especially since it would come pre-installed on the device.

The word is that the Labels don't want to give Apple a break because they think Apple has to much power. That's one of the ways this deal makes sense, they are buying insiders with good relationships.

It is possible I have an extremely poor understanding of the industry, but regardless of whether the execs have a buddy relationship with Iovine they still must know that it's Apple they're dealing with. Buying connections makes sense at a certain level, but I sincerely doubt Apple has problems getting a meeting with the right people.

I'm not clear onthe power distribution. Does the fat cats in the US hold the keys to licensing deals in the rest of the world as well, or does Apple have to make deals with the regional execs?

I'm cateye's age and I don't think I've spent more than ten minutes listening to streamed music (not counting the Sirius radio in the car, and I don't listen to the streaming version of that either), but when it comes to social technology I'm something of an old coot. (You kids get off my Classmates.com lawn!) So the music part of all this doesn't matter to me that much.

I do like the EarPods a lot more than I like Apple's original headphones, but they could still use a little more frequency response, so hopefully Beats has some useful technology Apple can pick up. Aside from that, like many others, this whole thing confuses me.

It's hilarious to read some of the justifications here. Apple has become like the new (old) General Motors. The old GM was obsessed with buying out businesses it had no business being in in the first place (like EDS, DirecTV, etc.) while losing focus on its core business. They thought the public could be fooled with crappy product and slick marketing and perhaps they were for a while. But Beats headphones are a junk product. And if Dr. Dre outsmarted them with regards to music streaming (with something Apple can't figure out how to make themselves) then the rot at Apple must be quite deep.

I'm cateye's age and I don't think I've spent more than ten minutes listening to streamed music (not counting the Sirius radio in the car, and I don't listen to the streaming version of that either), but when it comes to social technology I'm something of an old coot. (You kids get off my Classmates.com lawn!) So the music part of all this doesn't matter to me that much.

I was right right with you up until six months ago or so. I had my maniacally hand-curated library of 11,000 or so tracks in iTunes (mostly ripped from CDs; often the import versions, if you must know... #musicsnob) but then someone passed me a code for two free months of Spotify so I thought I'd try it out. While I am completely allergic to all the social/collaborative playlisting features and "friending" and all that (my tightly locked down Facebook account is enough online social interaction for me, thank you), I'm not at all being hyperbolic when I say it completely reinvented how I interact with music. No longer tied to the idea of paying directly for everything I listen to (nor guilt ridden by stealing it outright via torrent), I started diving much deeper into new genres and artists. Having the freedom to explore whatever suits me at a given time is really intoxicating.

If my experience is at all common, it's no surprise why the iTunes/per-track model is declining, and why Apple might be motivated, out of a sense of urgency, to buy-in rather than develop it in-house. Sort of a, "well, we DO have $160B, may as well use it."

I'm cateye's age and I don't think I've spent more than ten minutes listening to streamed music (not counting the Sirius radio in the car, and I don't listen to the streaming version of that either), but when it comes to social technology I'm something of an old coot. (You kids get off my Classmates.com lawn!) So the music part of all this doesn't matter to me that much.

I do like the EarPods a lot more than I like Apple's original headphones, but they could still use a little more frequency response, so hopefully Beats has some useful technology Apple can pick up. Aside from that, like many others, this whole thing confuses me.

I like to stream BBC Radio 2. Thus far I've not had any interest in the US commercial streaming services FD: I'm roughly SJ's age.